Received Cash From Owner As An Additional Investment Journal Entry In Accounting

The Effect Of Received Cash From Sole Owner Or Owners / Proprietors On The Accounting Equation

When cash received by the business from Sole Proprietor or Sole Owner as an additional investment in order to grow, expand or to Stabilize the Business, then following journal entry is recorded as shown below:

                                                                               Cash a/c  XXX

 

                                                                                                      Additional Capital a/c  XXX

 

                                                                         (Additional Capital Invested in the Business)

The Effect Of Additional Capital On Accounting Equation

Example: Mr. A is a Sole Proprietor who invested an additional investment of Rs. 50000 to grow his business. What is the journal entry and the effect of additional investment on the accounting equation?

Additional Investment / Further Capital Introduced By Sole Owner Journal Entry

                                                                                    Cash a/c  50000

                                                                                                       Additional Capital a/c  50000

                                                 (Mr. A Invested Additional / Further or Fresh Capital into the Business)

The Effect Of Additional Investment On The Accounting Equation

                                                              Assets    =   Liabilities   +       Owner’s Equity

                                                              +Cash     =           0           +   +(Additional Capital)

                                                              +50000   =           0           +             +(50000)

                                                                50000   =           0           +                 50000

The cash account is increased by Rs. 50000 as it is coming into the business, so we added it to the assets side (right side) of the accounting equation. The capital account is also increased by Rs. 50000 due to additional investment, as the rights of the owner, Mr. A, is increasing against the assets of the business, so we added it to the right side of the accounting equation and hence the accounting equation is still remained in balance, i.e., the left side = Rs. 50000 is equal to the right side = Rs. 50000.